CIA Annual MeetingAssemblée annuelle de l’ICA

June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006Ottawa, Ontario

Gen 42: Pandemics – What You Need to Know

CIA Annual Meeting Ÿ Assemblée annuelle de l’ICA

“With the recent development of hygiene and sanitation as marked as it is, the world felt safe against the possibilities of any new conflagration from influenza. But the experience of the last two years has demonstrated that we are not so far advanced in our knowledge of this disease, of its cause and of the methods of its control as we thought we were. Epidemics may still occur with sufficient virulence to test the resources and stability not only of life insurance companies but also of civilization itself.

GEN – 42: Pandemics – What you need to know

CIA Annual Meeting Ÿ Assemblée annuelle de l’ICA

“With the recent development of hygiene and sanitation as marked as it is, the world felt safe against the possibilities of any new conflagration from influenza. But the experience of the last two years has demonstrated that we are not so far advanced in our knowledge of this disease, of its cause and of the methods of its control as we thought we were. Epidemics may still occur with sufficient virulence to test the resources and stability not only of life insurance companies but also of civilization itself.”

Transactions Vol. XX Part 1 no. 61, May 1919

GEN – 42: Pandemics – What you need to know

Insurance Company Implications• Business Risks• Technical Risks• Plan, Measure, Quantify

Business Risks• Human resource issues

– Absence– Morale– Compensation– Succession planning

Business Risks• Reputation risk

– Customers• Delivery of service they considered essential

– Staff– Other stakeholders

• Shareholders• Regulators• Rating agencies

Business Risks• Failure of business partner

– Vendors / reinsurers – Consider their “just-in-time” policies

• Economic collapse– Short or long term?– Consider Toronto during the SARS outbreak

Business Risks• Government / private sector co-operation

– Health care, transportation– Funding cutbacks– Relief efforts

• Public attitudes– Fear– Decision makers

Technical Risks• Mortality & morbidity

– Age distribution, Concentration of risk– Difference by waves– Health coverage most impacted– Reinsurance

• Longevity– Offset for other coverages?

Technical Risks• Lapse / surrender / premium persistency

– Improvements in short term– Longer term?– Very short term, extend grace periods?– Annuities

• Investments– Asset value deterioration– Liquidity

Technical Risks• Expenses

– Maintaining mission critical functions – at what cost?

– Replacing lost skills, vendors– Staff health and welfare precautions– Providing work-from-home alternatives– Likelihood of uneven sales; short vs long term;

acquisition process

Plan, Measure, Quantify• Business continuity / resumption plan

– Considerations for longer term impact– What is the cost?– Test the plan – Act now!

Plan, Measure, Quantify• Role of the Actuary

– Excellent opportunity for risk modeling– Many interdependent contingencies– Comprehensive DCAT scenario– Consider staff benefits plan– Element of capital plan– Investment policies

CIA Annual Meeting Ÿ Assemblée annuelle de l’ICA

“The unique role that the insurance industry has played is that insurance companies are anticipatory. Your job is to understand the nature of the risk and to manage it. But in fact, the practices in which the insurance industry are engaged have been more focused on incremental management of the claims and not on risk management. There’s a shift in perception here that needs to take place.”

Dr. Michael McDonald SOA Pandemic Roundtable, May 2006

GEN – 42: Pandemics – What you need to know